SPYGLASS RESOURCES CORP (SGL): The Bargain Hunters Should Check Out This Oil and Gas Producer

Let’s take a closer look under the hood to check out whether this new stock has the potential to offer sizable capital gains from the current levels to investors.

The investment glasses and Spyglass

Actually, it doesn’t require special investment glasses to confirm the gross undervaluation of Spyglass at current levels. Here is why:

1) In Q1 2013, SPYGLASS RESOURCES CORP (TSE:SGL) produced 17,340 boepd (49% oil and liquids) and held proved reserves of 57.5 MMboe (51% oil and liquids). With Enterprise Value of ~$560 million, Spyglass trades at $32,300/boepd and $9.74/boe of proved reserves.

Most oil and gas producers with a balanced production mix (approximately 50%-55% oil and liquids) and producing areas in North America, carry much higher valuations than SPYGLASS RESOURCES CORP (TSE:SGL). Here are some of them:

Company	EV	Production (boepd)	Proved Reserves (MMBoe)	Per boepd	Per boe
PVA	~1,4 billion	19,000	125.5	~$73,700	~$11.16
SM	~5,7 billion	115,000	293	~$49,600	~$19.45
RTK	~220 million	3,603	17.05	~$61,100	~$12.9

After the recent deal with Magnum Hunter, Penn Virginia Corporation (NYSE:PVA) has expanded significantly its acreage in the Eagle Ford shale in Texas which is its primary operating area. Penn Virginia Corporation (NYSE:PVA) acquired oil-weighted producing assets of 3,200 boepd and 12 MMboe of proved reserves. Penn Virginia Corporation (NYSE:PVA) also owns properties in the Mid-Continent, Mississippi, and the Marcellus Shale.

Artek Exploration (TSX:RTK) has its core operating areas (128,000 net acres) in the Peace River Arch and Deep Basin areas of Alberta and British Columbia, targeting primarily the liquids-rich Montney and Doig formations. It is also worth noting that Artek has one of the highest rates of insider ownership in the energy patch. The insiders own 29% of the company.

SM Energy Co. (NYSE:SM) has a diversified portfolio of assets extending from the Williston Basin of North Dakota to the Basins of Texas, targeting primarily the Bakken/Three Forks, the Eagle Ford, and the Mississippian lime formations.

It is worth noting that Moody’s upgraded recently SM Energy Co. (NYSE:SM)’s Corporate Family Rating (CFR) to Ba2 from Ba3. Moody’s also upgraded the company’s existing senior notes to Ba3 from B1. Several analysts have also upgraded shares of SM Energy Co. (NYSE:SM) lately, raising their price targets and their ratings on the stock.

2) Spyglass is a dividend paying entity with a monthly dividend of $0.60225 per share, resulting in a hefty annual yield of 12%. Based on the outlook for the oil and gas prices, I am not concerned about Spyglass’ dividend sustainability. Spyglass targets a basic dividend payout ratio of 25% to 30% and an all-in payout ratio (including capital expenditures) of 90% to 100% of the projected annual cash flow which is estimated at ~$105 million for 2013. After all, the targeted payout ratio is reasonable and achievable.

3) SPYGLASS RESOURCES CORP (TSE:SGL) has secured a $400 million senior credit facility and has approximately 30% undrawn upon closing. This gives the company sufficient breathing room for 2013 to execute its drilling program.

SPYGLASS RESOURCES CORP (SGL): The Bargain Hunters Should Check Out This Oil and Gas Producer

Published on June 5, 2013 at 11:03 am by The Motley Fool in News

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